Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
rd
DATE OF DECISION: 3 DECEMBER, 2013
+ CRL.M.C. 2726/2013
M/S SWASTIK POLYVINYLS (P) LTD. ..... Petitioner
Through Mr. Ashok Bhalla, Advocate
versus
B M GUPTA & ORS. ..... Respondents
Through Mr. Rajiv Rajan Prasadam, Advocate
WITH
+ CRL.M.C. 2730/2013
M/S SWASTIK POLYVINYLS (P) LTD. ..... Petitioner
Through Mr. Ashok Bhalla, Advocate
versus
B M GUPTA & ORS. ..... Respondents
Through Mr. Rajiv Rajan Prasadam, Advocate
AND
+ CRL.M.C. 2731/2013
M/S SWASTIK POLYVINYLS (P) LTD. ..... Petitioner
Through Mr. Ashok Bhalla, Advocate
versus
B M GUPTA & ORS. ..... Respondents
Through Mr. Rajiv Rajan Prasadam, Advocate
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 1 of 15
CORAM:
HON'BLE MS. JUSTICE SUNITA GUPTA
J U D G M E N T
: SUNITA GUPTA, J.
1. Three criminal miscellaneous petitions bearing Nos. Crl. M.C.
Nos. 2726/2013, 2730/2013 and 2731/2013 under Section 482 of
Code of Criminal Procedure, 1973 have been filed for quashing the
th
order dated 10 April, 2013 passed by learned Additional Sessions
Judge whereby Criminal Revision No. 20/2013 filed by respondent
No. 1-3 was allowed.
2. The factual matrix of the case leading to the filing of the present
petitions are that the petitioner Company has been carrying out the
business of rubber/plastic compound and master batches for cable,
footwear and automobiles and in the normal course of its business had
despatched/supplied PVC compound on various dates to M/s Brimson
Cables Private Limited, of which respondent Nos. 1-3 are Directors.
st
The company admitted its liability as on 31 March, 2011 by issuing
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 2 of 15
st
confirmation of accounts to the petitioner Company on 1 April, 2011
and towards part payment/partial discharge of its legal liability issued
cheques under the signature of Sh. Hardesh Gupta as director of the
company. On presentation, the cheques were returned unpaid for the
reasons “ exceeds arrangement ” whereafter the petitioner company
issued legal notice to the company and all its four directors.
However, the company and its directors did not pay the amount
despite service of legal notice. There upon, the petitioner company
th
filed criminal complaint dated 16 November, 2011 under Section
138 read with Sections 141 and 142 of Negotiable Instruments Act,
th
1881. Vide order dated 24 December, 2011 the learned Metropolitan
Magistrate summoned the company and all the four directors
including respondent Nos. 1-3. Respondent Nos. 1-3, herein, filed
th
criminal revision dated 17 December, 2012 against the order of
th
summoning dated 24 December, 2011 on the plea that they had
nothing to do with the alleged offence as they had neither issued the
cheques to the petitioner company nor had placed any purchase order
for purchasing the goods. The criminal revision petition was allowed
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 3 of 15
th
by the learned Additional Sessions Judge vide order dated 10 April,
2013.
3. This order has been challenged, inter alia , on the ground that in
the case of K.K. Ahuja v. V.K. Vohra and Another 2009(9) Scale 87
Hon’ble Supreme Court has held that the averment in a complaint that
an accused is a director and that he is in charge of and is responsible
to the company for the conduct of the business of the company, duly
affirmed in the sworn statement, may be sufficient for the purpose of
issuing summons to him. Relying upon the judgment of K.K. Ahuja
(supra) in the case of Krishna Murari Lal v. IFCI Factors Limited
2012 X AD (Delhi) 539 and Susanna Jacob v. Pyroguard Engineers
Private Limited and Others 2012 IX AD (Delhi) 173, High Court
held that in view of specific averments made in the complaint and the
fact that the petitioner was admittedly a director of the company, a
presumption under Section 141 of N.I Act would have to be drawn
against the petitioner. However, the presumption is rebuttable one,
but evidence to the contrary would have to be led by the petitioner.
The petitioner company has led pre-summoning evidence by filing
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 4 of 15
duly sworn affidavit of CW1 clearly reiterating the averments set out
in the complaint, which were sufficient at this stage for summoning
the company and the directors. The learned Metropolitan Magistrate
has rightly summoned the respondents. The summoning order do not
suffer from any infirmity, as such, it was prayed that the impugned
th
order dated 10 April, 2013 passed by learned Additional Sessions
th
Judge be set aside and the order dated 24 December, 2011
summoning respondent Nos. 1-3 be restored.
4. Notice of the petition was given to the respondents.
5. I have heard Mr. Ashok Bhalla, learned counsel for the petitioner
and Mr. Rajiv Rajan Prasadam, learned counsel for the respondents
and have perused the record.
6. It was submitted by learned counsel for the petitioner that the
summoning order do not suffer from any infirmity and without
considering the ratio of K.K. Ahuja (supra) and the other authorities
referred by him in the petition, learned Additional Sessions Judge
wrongly quashed the summoning order qua respondent Nos. 1 to 3. It
is liable to be set aside.
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 5 of 15
7. Per contra it was submitted by learned counsel for the respondent
that it was incumbent upon the petitioner to have averred in the plaint
the specific role of respondent Nos. 1-3 and the mere allegation that
respondent Nos. 1-3 are directors is not sufficient as they were neither
the signatory of the cheque nor had placed any order for purchase of
goods. Only general allegations were levelled against the revisionist
that did not meet the requirement of law as held in S.M.S.
Pharmaceuticals Limited v. Neeta Bhalla and Another , 2005(8) SCC
89 therefore, the revision petition was filed which was rightly allowed
by learned Additional Sessions Judge. The impugned order does not
suffer from any infirmity which calls for interference, as such, these
petitions are liable to be dismissed.
8. I have given my considerable thoughts to the respective
submissions made by learned counsel for the parties and have perused
the record.
9. A perusal of the complaint filed by the petitioner which was
reproduced in his evidence reveals that the only allegation made
against respondent Nos. 1 to 3 is to the effect that the company had
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 6 of 15
dispatched/supplied PVC compound to M/s Brimson Cables Private
Limited, a Private Limited Company incorporated under the
Companies Act, 1956 of which accused Nos. 2 to 5 (respondent Nos.
1 to 3 herein) are directors and incharge and responsible for the
conduct of the business of the company.
10. The sole question to be considered is whether mere assertion in
the complaint or in the pre-summoning evidence that respondent Nos.
2-4 are directors, in-charge and responsible for the conduct of the day
to day business of the company is sufficient to hold the accused
vicariously liable for the commission of offence punishable under
Section 138 of NI Act.
11. Section 138 and Section 141 were brought in the NI Act by the
Banking, Public Financial Institutions and Negotiable Instruments
Laws (Amendment) Act, 1988 (Act 66 of 1988) with effect from
April 1, 1989. These provisions as amended from time to time read as
under:
“138. Dishonour of cheque for insufficiency, etc., of
funds in the account .-Where any cheque drawn by a
person on an account maintained by him with a banker
for payment of any amount of money to another person
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 7 of 15
from out of that account for the discharge, in whole or in
part, of any debt or other liability, is returned by the
bank unpaid, either because of the amount of money
standing to the credit of that account is insufficient to
honour the cheque or that it exceeds the amount
arranged to be paid from that account by an agreement
made with that bank, such person shall be deemed to
have committed an offence and shall without prejudice
to any other provisions of this Act, be punished with
imprisonment for a term which may extend to two years,
or with fine which may extend to twice the amount of
the cheque, or with both:
Provided that nothing contained in this section shall
apply unless-
(a) the cheque has been presented to the bank
within a period of six months from the date on which it is
drawn or within the period of its validity, whichever is
earlier;
(b) the payee or the holder in due course of the
cheque, as the case may be, makes a demand for the
payment of the said amount of money by giving a notice
in writing, to the drawer of the cheque, within thirty
days of the receipt of information by him from the bank
regarding the return of the cheque as unpaid; and
(c) The drawer of such cheque fails to make the
payment of the said amount of money to the payee or as
the case may be, to the holder in due course of the
cheque, within fifteen days of the receipt of the said
notice.
Explanation.- For the purposes of this section,
‘debt or other liability’ means a legally enforceable debt
or other liability.
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 8 of 15
141. Offences by companies .-(1) If the person committing an
offence under Section 138 is a company, every person who, at
the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of
the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against
and punished accordingly:
Provided that nothing contained in this Sub-section shall
render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such
offence:
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government
or a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he
shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in Sub-section (1),
where any offence under this Act has been committed by a
company and it is proved that the offence has been committed
with the consent or connivance of, or is attributable to, any
neglect on the part of, any director, manager, secretary or
other officer of the company, such director, manager, secretary
or other officer shall also be deemed to be guilty of that offence
and shall be liable to be proceeded against and punished
accordingly.
Explanation .-For the purposes of this section,-
(a) "company" means any body corporate and includes a
firm or other association of individuals; and
(b) "director", in relation to a firm, means a partner in
the firm.”
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 9 of 15
12. The legal position concerning the vicarious liability of a director
in a company which is being prosecuted for the offence under Section
138, NI Act has come up for consideration before this Court on more
than one occasion. In the case of S.M.S. Pharmaceuticals Ltd. v.
Neeta Bhalla and Anr. (2005) 8 SCC 89, the following questions
were referred to a 3-Judge Bench for determination:
“(a) Whether for purposes of Section 141 of the
Negotiable Instruments Act, 1881, it is sufficient if the
substance of the allegation read as a whole fulfil the
requirements of the said section and it is not necessary
to specifically state in the complaint that the person
accused was in charge of, or responsible for, the conduct
of the business of the company.
(b) Whether a director of a company would be deemed
to be in charge of, and responsible to, the company for
conduct of the business of the company and, therefore,
deemed to be guilty of the offence unless he proves to
the contrary.
(c) Even if it is held that specific averments are
necessary, whether in the absence of such averments
the signatory of the cheque and or the managing
directors or joint managing director who admittedly
would be in charge of the company and responsible to
the company for conduct of its business could be
proceeded against.
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 10 of 15
13. The three-Judge Bench of Hon’ble Supreme Court
answered the aforesaid questions thus:
“(a) It is necessary to specifically aver in a complaint
under Section 141 that at the time the offence was
committed, the person accused was in charge of, and
responsible for the conduct of business of the company.
This averment is an essential requirement of Section 141
and has to be made in a complaint. Without this
averment being made in a complaint, the requirements
of Section 141 cannot be said to be satisfied.
(b) The answer to the question posed in sub-para (b) has
to be in the negative. Merely being a director of a
company is not sufficient to make the person liable
under Section 141 of the Act. A director in a company
cannot be deemed to be in charge of and responsible to
the company for the conduct of its business. The
requirement of Section 141 is that the person sought to
be made liable should be in charge of and responsible for
the conduct of the business of the company at the
relevant time. This has to be averred as a fact as there is
no deemed liability of a director in such cases.
(c) The answer to Question (c) has to be in the
affirmative. The question notes that the managing
director or joint managing director would be admittedly
in charge of the company and responsible to the
company for the conduct of its business. When that is so,
holders of such positions in a company become liable
under Section 141 of the Act. By virtue of the office they
hold as managing director or joint managing director,
these persons are in charge of and responsible for the
conduct of business of the company. Therefore, they get
covered under Section 141. So far as the signatory of a.
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 11 of 15
cheque which is dishonoured is concerned, he is clearly
responsible for the incriminating act and will be covered
under Sub-section (2) of Section 141.”
14. This view was reiterated in K.K. Ahuja (supra) which was relied
upon by learned counsel for the petitioner. Learned counsel for the
petitioner has relied upon the following portion of the judgment as
appearing in para 17:-
“Therefore, the averment made in the complaint that an
accused is a director and that he is in-charge and is responsible
to the company for the conduct of the business of the
company, duly affirmed in the sworn statement may be
sufficient for the purpose of issuing summons to him...”
15. However, after detailed discussion, in para 20, the position under
Section 141 of the Act was summarised thus:
(i) If the accused is the Managing Director or a Joint Managing
Director, it is not necessary to make an averment in the complaint
that he is in charge of, and is responsible to the company, for the
conduct of the business of the company. It is sufficient if an
averment is made that the accused was the Managing Director or
Joint Managing Director at the relevant time. This is because the
prefix `Managing' to the word `Director' makes it clear that they
were in charge of and are responsible to the company, for the
conduct of the business of the company.
(ii) In the case of a director or an officer of the company who
signed the cheque on behalf of the company, there is no need to
make a specific averment that he was in charge of and was
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 12 of 15
responsible to the company, for the conduct of the business of the
company or make any specific allegation about consent,
connivance or negligence. The very fact that the dishonoured
cheque was signed by him on behalf of the company, would give
rise to responsibility under Sub-section (2) of Section 141.
(iii) In the case of a Director, Secretary or Manager (as defined in
Section 2(24) of the Companies Act) or a person referred to in
clauses (e) and (f) of Section 5 of Companies Act, an averment in
the complaint that he was in charge of, and was responsible to the
company, for the conduct of the business of the company is
necessary to bring the case under Section 141(1). No further
averment would be necessary in the complaint, though some
particulars will be desirable. They can also be made liable under
Section 141(2) by making necessary averments relating to consent
and connivance or negligence, in the complaint, to bring the
matter under that Sub-section.
(iv) Other Officers of a company can not be made liable under Sub-
section (1) of Section 141. Other officers of a company can be
made liable only under Sub-section (2) of Section 141, be averring
in the complaint their position and duties in the company and their
role in regard to the issue and dishonour of the cheque, disclosing
consent, connivance or negligence.
16. In Para 21, it was further observed as under:
“If a mere reproduction of the wording of Section 141(1) in the
complaint is sufficient to make a person liable to face
prosecution, virtually every officer/employee of a company
without exception could be impleaded as accused by merely
making an averment that at the time when the offence was
committed they were in charge of and were responsible to the
company for the conduct and business of the company. This
would mean that if a company had 100 branches and the
cheque issued from one branch was dishonoured, the officers
of all the 100 branches could be made accused by simply
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 13 of 15
making an allegation that they were in charge of and were
responsible to the company for the conduct of the business of
the company. That would be absurd and not intended under
the Act. As the trauma, harassment and hardship of a criminal
proceedings in such cases, may be more serious than the
ultimate punishment, it is not proper to subject all and sundry
to be impleaded as accused in a complaint against a company,
even when the requirements of Section 138 read with Section
141 of the Act are not fulfilled.”
17. Therefore, even in this authority it was observed that mere bald
averments in the complaint that accused persons were incharge and
responsible for the conduct of day to day business of the company is
not sufficient to hold them vicariously liable. It is incumbent upon the
complainant to specifically spell out the role of each and every director
if he is not the Managing Director or Joint Managing Director or
signatory to the cheque and to explain how the other directors were in-
charge and responsible for the conduct of day to day business of the
company.
18. Krishna Murari Lal (supra) and Susanna Jacob (supra) also
does not help the petitioner, inasmuch as, in those cases besides
alleging that the accused were directors and in-charge and responsible
for the conduct of day to day business of the company there were other
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 14 of 15
specific allegations against them, as such, it was observed that a
presumption has to be drawn which is rebuttable, but evidence to the
contrary would have to be led by the them.
19. Things are entirely different in the instant case, inasmuch as,
except for reproducing the wording of Section 141(1) in the complaint,
no specific role has been assigned to respondent Nos. 1 to 3. They are
admittedly not the Managing Director or Joint Managing Director of
the company, nor are the signatories to the cheque. Therefore, in the
absence of making specific allegation against them as to how they were
in-charge and responsible for the conduct of day to day business of the
company, they could not be made vicariously liable.
20. In view of the above discussion, learned Additional Sessions
Judge was right in setting aside the impugned order qua summoning of
these accused persons which does not suffer from any infirmity.
21. That being so, the petitions are devoid of merit and the same are
accordingly dismissed.
SUNITA GUPTA
(JUDGE)
DECEMBER 03, 2013
AK
CRL.M.Cs. 2726/2013 and 2730-31/2013 Page 15 of 15